Ryan Grim, Huffington Post
As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn’t sell in the market, according to a report from court-appointed examiner Anton R. Valukas.
The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a “warehouse” for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.
Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities. The provision passed the House but is under attack in the Senate, where Banking Committee Chairman Chris Dodd (D-Conn.) says he hopes to stop it.
Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.
“The Fed legally is forbidden from taking such assets. There’s a legal requirement that the Fed’s assets be investment grade,” Rep. Alan Grayson (D-Fla.) told HuffPost. Grayson, who is the cosponsor of the Grayson-Paul Audit the Fed measure that passed the House, said the Lehman scandal shows precisely why such an audit is needed.
“The net result of this is we know the Fed knowingly bought assets for more than they were worth — substantially more than they were worth — and actually created a market for garbage that Lehman was more than happy to push on the Fed because they regarded the public as the suckers of last resort,” said Grayson.
Read more here: http://www.huffingtonpost.com/2010/03/22/new-york-fed-warehousing_n_508443.html
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